get the plans locked down.
by anthony glomski
let’s look at ways to help your clients minimize taxes when they sell their business, to avoid leaving money on the table and to reduce concentration risk.
more on liquidity: even entrepreneurs must diversify | when clients cash out: four smart financial moves
exclusively for pro members. log in here or 2022世界杯足球排名 today.
here we’ll take a closer look at two common missteps that business owners and their advisors make during the exit process – and how to avoid them.
transferring wealth effectively and tax-efficiently
in the wake of a liquidity event, it is possible – even likely – that your client’s financial needs are well in hand. if so, they may be looking to ensure that their parents, children and grandchildren are well taken care of as well – and in accordance with their wishes and stipulations.
transferring wealth through estate planning requires one to decide how their assets will be distributed when they are gone. for successful entrepreneurs, this means determining how and when their heirs will receive money or business interests, and ensuring that the maximum amount possible is transferred to their heirs – while minimizing taxes. proper estate planning is the most effective way for successful entrepreneurs to leave a legacy for their loved ones in a way that satisfies their wishes and provides for the financial health and well-being of their family. i’m sure you’ve seen clients endure years of stress when siblings and relatives attempt to sort out the estate of a recently deceased family member. the stress is even greater when substantial assets are involved, so make sure your entrepreneurial clients get their estate planning in order well before their exit takes place.
estate planning is one of the most important, yet misunderstood, areas of entrepreneurs’ financial lives. estate taxes, for example, usually receive all the attention, and it’s easy to see why: if they are not properly addressed, the government can grab 40 percent of what the entrepreneur has worked so hard to build.
that said, taxes are only one part of a broader estate planning picture. you and your client also need to focus on issues such as management and wealth succession concerns, selection of successor managers or trustees, and preparing loved ones to receive and make the best use of the money they will eventually inherit.
estate planning can become especially important prior to a liquidity event when a successful entrepreneur is likely to experience a huge increase in net worth. yesterday, an estate plan may have been the last thing on their mind. today, it becomes a top priority. even with a thorough estate plan in place, going through a liquidity event will create dramatic changes to his or her personal balance sheet and will limit the potential advanced planning opportunities available.
in short, estate planning is not a “one and done” exercise. the best estate plans are dynamic, living strategies that can be – and should be – adapted and optimized to reflect the changes that inevitably occur over the course of your life. make sure you are up to speed on the tax and accounting aspects of estate law in your state and be sure you have partnered with at least one, if not several, highly experienced estate attorneys to give your clients the best possible outcome pre- and post-exit.
protecting your client’s money from being taken unjustly
guarding one’s newly acquired wealth against potential creditors, lawsuits, children’s spouses, potential ex-spouses and catastrophic loss should be a key consideration. by historical standards, the number of lawsuits against the affluent in recent years is high. yet entrepreneurs rarely focus enough on protecting themselves. consider these sobering statistics from prince associates:
- approximately 65 percent of successful business owners said they have been involved in unjust personal lawsuits and/or divorce proceedings.
- roughly 90 percent of these business owners said they are concerned about such lawsuits.
- only about one in four business owners (26.9 percent) has a plan in place to protect his or her assets.
wealth protection strategies can be used to help safeguard wealth so that assets are not unjustly taken. these strategies will also provide your clients with greater peace of mind knowing that their financial security is indeed secure. how you address these concerns will depend on your client’s specific situation. common actions include controlling risks though restructuring various assets and considering legal forms of ownership – trusts, limited liability entities and so on – that put a shield between your client’s money and other parties who might not have their best interests in mind.
it’s critical to realize, however, that for asset protection strategies to be effective and able to withstand legal challenges, they must be put in place well before they are actually needed. the upshot: you need to plot out an asset protection for your client plan sooner rather than later if you truly want to guard the significant wealth your client has now (or is about to have).
creating a strategy
as you review these five key challenges above, think about the most successful entrepreneurs on your client roster. chances are many of them share these concerns – perhaps all of them. or maybe these are issues that they haven’t given much thought to in the past, and you’re now a bit closer to seeing how crucial it is to create a strategy that tackles them head-on.
the highest performing cpas i know are proactive rather than reactive. they don’t wait for clients to coming running to them with last-minute challenges and deadlines – they know how to anticipate them. when it comes to the successful business owners you serve, don’t let them get painted into a corner as they start contemplating an exit from their businesses. start the process several years in advance.
your response to the key challenges discussed above – and others they might face – will be an enormous driver of the level of financial success and peace of mind that your client seeks as he or she moves toward liquidity. next we will discuss the framework for financial decision-making that will help you build a truly comprehensive plan for managing the full spectrum of your client’s money – today, tomorrow and for decades to come.